In March 2009, Seoul ranked 53nd among global financial centers; by March 2012, Seoul skyrocketed to number 9. What factors have enabled Seoul’s marked rise? How is Korea emerging relative to other hubs in Asia? What are the opportunities and challenges for continued growth?

Dr. Yoon-shik Park of George Washington University’s School of Business discusses Seoul’s emergence as a global financial center. Dr. Park was formerly Senior Economist at the World Bank and served as Financial Advisor to the Chairman of Samsung Group in Korea. He served as a member of the Board of Directors of Samsung and has written on the emergence of Korea in international finance.

Friday, September 21, 2012

8:15 AM | Registration & Light Breakfast8:30 AM | Discussion

Seoul’s Rise as a Global Financial Center

with

Dr. Yoon-shik ParkProfessor of International FinanceSchool of Business of George Washington University

Moderated by Nikita DesaiDirector of PolicyCorporate Programs, The Korea Society

Dr. Yoon-shik Park is currently Professor of International Finance at the School of Business of George Washington University in Washington, D.C. He taught at Georgetown University and Columbia University prior to his position at George Washington. In addition to his MBA in finance and MA in economics, Dr. Park has received two doctorate degrees: Doctor of Business Administration (DBA) in international finance from Harvard University Business School and a PhD in economics from George Washington University.

His published books include The Korean Bond Market: Post Asian Crisis and Beyond; Project Financing and International Financial Markets; International Banking and Financial Centers (Editor); International Banking in Theory and Practice; Oil Money and the World Economy; and The Eurobond Market: Function and Structure, as well as many articles and reports in the fields of international banking and finance.

Prior to joining the academia, he had worked for the World Bank as Senior Economist and then a member of the Board of Directors of Samsung Corporation. Currently, he is a member of the Board of Directors of the Korea Economic Institute of America, Inc. Dr. Park has been a consultant to the World Bank, Asian Development Bank, International Finance Corporation (IFC), Inter-American Development Bank, U.S. Agency for International Development (AID), U.S. Federal Reserve, U.S. Overseas Private Investment Corporation (OPIC), Foreign Service Institute of the U.S. State Department, U.S. Export-Import Bank, and other private and public institutions around the world.

NIKITA DESAI: Good morning, everyone. My name is Nikita Desai. I am the Director of Policy and Corporate Programs, and I am so excited to welcome you to our Corporate Program Kickoff.

Today's presentation looks at the remarkable rise of Seoul as a global financial center. In March of 2009, Seoul ranked 53rd among global financial centers. By March of 2012, it skyrocketed to No. 9. Here to discuss the factors that have led to Seoul's marked rise is Dr. Yoon-shik Park of George Washington University's School of Business.

Prior to joining the academe, Dr. Yoon-shik Park was a Senior Economist at the World Bank. He has served as a Financial Adviser to the Chairman of the Samsung Group in Korea as well as serving on Samsung's Board of Directors. Dr. Park has an MBA in finance, a master's in economics, a doctorate in business administration in international finance from Harvard and a PhD in economics from George Washington University.

YOON-SHIK PARK:Thank you very much for your very generous introduction. I apologize for taking up your Friday morning like this, but I believe the topic suggested by The Korea Society is very important. I am very grateful for all the work done by The Korea Society to introduce Korea to the American audience. In fact, I had the pleasure some years ago of attending the Van Fleet Award dinner at the Pierre Hotel in honor of the chairman of Samsung, and I am proud that Samsung has funded this conference center.

Today I am here to share my view of Seoul's rise as a global financial center. In fact, Seoul's rise has been accompanied by a general rise over the last several decades. Global trade, measured in terms of total exports, accounted for $18 trillion of all world trade volume in 2011. The daily foreign exchange trading volume in 2010 is estimated to have been about $4 trillion, over fifty times that of the New York Stock Exchange.

I started my studies in finance close to fifty years ago. At that time, discussions about finance were mostly about corporate finance. In the last half century, compared to the real sector of the economy, the financial sector has increased far more rapidly. Fifty years ago, international finance was a service industry for international trade, and trade financing was the major activity. Nowadays, international finance has grown so large in comparison to trade that it seems like the tail is wagging the dog rather than the dog wagging its tail.

In terms of the relative contribution of the financial sector—in the 1950s, the GDP share of value-added by the U.S. finance industry was about 3% of GDP. Now it's about 9%, a threefold increase over the last half century. The U.S. financial sector accounted for about 10% of total business profits in the early 1980s, but grew to 40% in 2006, right before the financial crisis. So, both in relative and absolute terms, the financial sector has grown. Both quantitative and qualitative growth has been impressive.

When I started my training in finance fifty years ago, we didn't have derivatives. We didn't have products such as a mortgage-backed securities, CMOs, or collateral debt obligation securities (CDOs). We didn't have active trading. The stars of Wall Street were corporate finance types or investment bankers. These days, the stars of Wall Street tend to be the traders, who make tens of millions of dollars for their firms.

The quantitative and qualitative increase in finance has also been accompanied by the rise of international financial centers. The most authoritative data I have found is provided by the annual Global Financial Centers Index published in London. As you can see, the top five international finance centers largely stayed the same; but what is interesting is the rapid rise of Seoul's ranking as an international financial center. I will talk about some of the factors leading to Seoul's rise in international financial centers in a few minutes.

Before doing that, let's look at the roles that international financial centers play. In addition to providing a place for the headquarters or regional offices of large international banks, international financial centers are home to many other types of financial service firms who specialize in services such as insurance, shipping, mutual funds, and hedge funds. Multinational corporations also are attracted to international financial centers for either their corporate offices or regional headquarters. International financial centers have also become the center of trading in foreign exchange, equities, loan syndications, M&A and other financial operations.

Most importantly, international financial centers are becoming the centers for financial innovation, not just with new financial products such as CDOs, CDSs, and others; but also new financial services and new techniques. Financial innovation is much more than simply creating new financial products. International financial centers are playing a primary role in driving this innovation.

We classify financial centers into roughly four types. The first type is primary centers that service clients globally. Then there are financial centers that serve as funding centers (like Hong Kong and Singapore) which are normally surrounded by very dynamic, fast-growing economies. Their role is to collect funds from around the world and then use those funds to finance regional economic development.

Conversely, collection centers (like the Middle East) store surplus savings. Rather than having individual countries like Kuwait or Saudi Arabia try to manage their assets globally, they put funds in the collection centers of Bahrain or Dubai. The collection centers then invest these funds globally. Finally, there are the booking centers or shell branch locations.

In addition, many financial centers maintain symbiotic relationships between primary financial centers and surrounding satellite financial centers. New York is an example of a global financial center or global player. New York's satellite centers are Bermuda, the Cayman Islands, Panama and the Bahamas. These centers feed off the global New York financial center. We see the same relationship between London, the Channel Islands, and the Isle of Man. In Singapore, you have Labuan as a satellite financial center and Seoul has Busan as a satellite financial center. Busan provides specialized financial services for industries such as ship financing, because of all the major shipbuilding companies in the surrounding areas.

International financial centers each have their own particular functional specializations. Functional specializations take advantage of the competitive strengths of the centers, largely determined by the location economics and regulatory environments. The two major international financial centers in Asia are Hong Kong and Singapore, and there are many similarities between the two. They are both former colonies of Great Britain. They both have dynamic economies with political stability, excellent transportation networks and communication facilities, advanced service infrastructures, English-speaking workforces and British-influenced efficient civil services.

There are also differences between Singapore and Hong Kong, and each city depends upon their unique strengths in order to gain advantage. Singapore is located between Europe and Asia; so during one business day, their business hours overlap with Asian cities such as Tokyo, Seoul, and Hong Kong. The Middle East and Europe have business hours that overlap with cities such as London and Zurich. Because of this, Singapore has developed into a thriving trading operation center; trading in foreign exchange, non-deliverable forward (NDF) contracts, Asian dollars and other international money and bond market operations.

Alternatively, Hong Kong is close to the dynamic East Asian economies of China, Korea, and Taiwan. This makes Hong Kong better known for project financing and loan syndications. In addition, Hong Kong hosts the headquarters of several multinational Asian corporations. So, one can see international financial centers taking advantage of their relative strengths, as well as the functional specializations of their members.

Now you may wonder why, in the day of the Internet and advanced IT services, we need to have specific geographic financial centers. Well, having these financial service firms in one location (in a particular regional financial center) makes a lot of sense. For example, by having all these financial centers in one place, we have economies of scale in terms of overhead costs. Additionally, you can manage a team of financial professionals in one place. You can easily reach critical mass. There are many advantages to having financial institutions in one location, and this is why international financial centers are continuing to develop and grow.

This concept is not unique to finance. Michael Porter of Harvard Business School made his name discussing international competitive advantage theory demonstrated by the combination of industry and geography. He talks about the important role of "clustering" firms (and not just financial firms). For example, textile-related companies are clustered in North and South Carolina. Fashion shoe companies are clustered in Northern Italy. My wife bought me a pair of Ferragamo shoes. They're really very comfortable. [Laughter]. There's the entertainment industry in Hollywood, IT-related firms in Silicon Valley, and the wine industry in Napa. In other words, clustering is not unique to finance. It happens with many other industries, as well.

However, in order for international financial centers to develop and thrive, they need active promotion by their host countries. Host countries, in turn, encourage the development of financial centers because it provides enormous benefits. The most important advantage is the promotion of globalization and modernization.

Korea has many smart people, but they are divided into two groups: the bureaucracy and corporate executives. Some have a more domestic orientation; others have a more globalist viewpoint; and there is ongoing friction between the two parties. This does not only occur in Korea. During my ten-year career at the World Bank, I visited many developing countries. Some countries want to become more internationalized and to embrace modern economic concepts. These are the internationalists.

Then there are many others who are equally smart and dedicated, but more oriented internally towards their domestic roots. I believe that hosting an international financial center strengthens the hand of the globalist or internationalist. I am not promoting internationalization for the sake of internationalization. I believe that any economy, which is more open to a global standard, will grow much more quickly than those countries wishing to remain closed. Again, one of the primary benefits of hosting an international financial center is this concept of globalization and modernization.

International financial centers also promote the development of a financial infrastructure. International financial centers are not just an assembly of banks. There are many types of global financial services, including global legal and accounting practices, modern hotels, and modern housing. Financial professionals from all over the world need modern housing, modern transportation, up-to-date medical services, and even cultural facilities. All types of financial services can make up the infrastructure of an international financial center and induce faster development.

Then there are the jobs. These are not hamburger-flipping jobs. These are high value-added, professional, high-paying jobs; the kind of service sector jobs that any modernized country would promote. Additionally, there are enhanced government revenues derived from taxes, dues, and fees. They encourage foreign direct investment and foreign portfolio investment. They attract the regional headquarters of MNCs. The hosting of a global financial institution brings access to the latest global financial intelligence and new trends, and it's easier to attract direct investment. They encourage greater cultural activities and a higher quality of life, similar to the standard of living in Seoul.

Finally, international financial centers enhance international security. Lee Kuan Yew, in his autobiography, promoted the development of international financial centers in the late 1960s. Mr. Lee emphasized that Singapore had just gained independence from Malaysia, but was surrounded by huge Muslim countries. Singapore is a tiny city/state. In the late 1960s, it was composed of close to 90% Chinese immigrants, with Indonesia in the south and then Malaysia in the north.

Lee Kuan Yew thought that attracting the branch office of a major U.S. bank like Citibank or J.P. Morgan would be the equivalent of attracting one military division of the U.S. Army. In other words, the United States, Great Britain or other developed countries would never look kindly on any foreign invasion forces taking over their financial institutions. An additional benefit is the addition of jobs and other contributions to economic activities for the host city. So, there are many benefits to hosting an international financial center.

Korea will derive unique benefits from becoming an international financial center. The Korean economy's development model has been, to this point, export-centered and almost neo-mercantilist in nature. However, as Korea develops further, there will be a greater resistance towards this kind of mercantilistic model.

We need a new economic development paradigm, one with less emphasis on Samsung's electronics or Hyundai Motors. We also need domestic, service-related economic development—not hamburger-flipper service jobs; but more professional, high value-added service jobs. What could make a better contribution to economic development than the expansion of financial services? Unfortunately, Korea is relatively backwards in the service sector, despite the impressive Korean multinational firms.

The share of service sector value added for G-7 countries is about 72% of the GDP. Korea's share is only 60%, a much smaller segment. Additionally, the share of total employment in the service sector is 75% for the G-7 countries, while Korea's share is 67%. There is a lot of room for improvement. If you look even more deeply, the productivity of the Korean service sector is estimated to be only one-third of that of Switzerland and only one-half as much as the productivity of the United States. Yes, the productivity of Samsung Electronics, Hyundai Motors, and POSCO is truly world-class (they are as competitive as any big boys in the world) but Korea's share of the service sector is very small.

Why? It is because the Korean service sector is concentrated in wholesale and retail sales, food services, and lodgings. I consider these services almost primitive. More advanced countries have service sectors dominated by more knowledge service industries like banking, finance, insurance, medicine, telecommunications, and research and development—and at the forefront of the knowledge and service industry is financial services.

Now, in order for Korea to develop as a major international financial center, Koreans have to determine the requirements necessary to do so. First, you need political and social stability and a business-friendly government. See, we are talking about international money and hosting international financial centers, and international money is very sensitive to foreign instability. Money can be moved with just one click of a mouse. Therefore, in order to attract and house international money, you have to have macro, stable political and governmental development.

In line with this, financial regulation should be kept to a minimum, because financial institutions hate undue regulation. Some of this is certainly necessary, but there are also unnecessary bureaucratic regulations. In addition, modern financial centers require a stable infrastructure, comparative in both cost and quality. They're looking for a liberal visa system. It would be good to have some kind of time zone advantage like Singapore. And let's face it. The language of international finance is English—not French and not Chinese. Therefore, you need a significant pool of English-speaking professionals in addition to modern legal and accounting service firms. A host country should have a dynamic economy.

Now, what comparative advantages does Korea have to attract, nurture and develop an international financial center? Why has Korea's ranking risen to No. 9 of all global financial centers? The most important reason is the dynamic Korean economy. Korea's economy is the 13th largest in the world and the fourth largest in Asia. Seoul has probably one of the most efficient international airports (Incheon International Airport). About one-quarter of the world's GDP is produced within two-and-a-half hours of flying time from Seoul, and by the year 2020, it is expected that 30% of the world GDP will be produced within that region. Korea is experiencing dynamic global economic development.

Korea's financial assets account for eight times Korea's GDP. This is even higher than the U.S. The financial assets of the United States are about four-and-one-half times U.S. GDP. The U.K.'s financial assets are equivalent to five times their GDP. Korea is almost twice as much, so Korea is already a well-developed market financially.

Korea is also, as I said, home to world-class multinational corporations, and Korea's IT infrastructure is world-renowned. I think Korea's IT infrastructure is on par with Singapore and far more advanced than the U.S. and other countries. We have a very vibrant and deep-rooted democracy with a modern governance structure. I think these assets are what led Korea to become the ninth largest global financial center. This is not something that happens overnight, but there is an environmental competitive advantage.

In addition, a major effort has been put forth by both the private and government sectors to develop an international financial center in Korea. About ten years ago, a group of financial practitioners (scholars, bankers, and other thinkers) formed the Seoul Financial Forum. In 2002, they published Korea as an International Financial Center: Vision and Strategy. It's a road map. Soon after, the Roh Moo-hyun administration came into power in 2003. They adopted the First Financial Hub Roadmap. That was strengthened, revised and updated in 2005 and renamed the Second Financial Hub Roadmap. Statistics show that during the Roh Moo-hyun administration, Seoul was relatively low in the ranking of global financial centers.

In 2008, the Lee Myung-bak administration came into power, and the determination to become an international financial center was promoted far more energetically. I saw it with my own eyes. On February 25, 2008, Lee Myung-bak became president. Two months later in April 2008, President Lee and I had lunch in his private residence just behind the Blue House.

In the late 1990s, he spent one-and-a-half years in Washington as a visiting scholar at George Washington University. I was his faculty sponsor. So, I know him personally, and my family knows his family. (He liked Washington so much, he asked George Washington University to grant him a visiting scholarship for an additional year—so he stayed for two years.) While President Lee was at GWU, he well understood the impact an international financial center would have on Korea's growth, and how it would move Korea to the next level.

One-and-a-half years later, he returned to Korea to run as mayor of Seoul. Once he became mayor, one of his main promises was the development of Korea as an international financial center. Korea's Wall Street in Seoul, on Yeouido Island, is a brand new, huge international financial center. This is the product of Lee Myung-bak.

When I had lunch with him in April of 2008, I again reminded him of the importance of developing an international financial center, and he fully agreed with me. In fact, during the lunch he placed a call to Dr. Il Sakong, who was at that time his key economic adviser and the chairman of Korea's Comparative Commission. He said to Dr. Sakong, "By the way, Dr. Park is in town. Why don't you get together and discuss some matters?"

The next day, Dr. Il Sakong and I had lunch, and I intentionally invited Kim Kihwan, who was the founder and chairman of the Seoul Financial Forum. As we talked, I realized I was part of the choir. Both Il Sakong and Kim Kihwan understood the importance of having an international financial center, while the Lee Myung-Bak administration really pushed the notion of Seoul as a truly competitive global financial center. I think they succeeded somewhat, as the latest data now ranks Korea at No. 9.

However, my opinion is that this still is not satisfactory, because Korea has far greater potential. I think they can be on par with Singapore or Hong Kong. Why hasn't Korea been as successful as Hong Kong or Singapore? I think there is still a lot of bureaucratic and interest group resistance to the regulations and other measures necessary to promote an international financial center.

The attraction of entities like for-profit hospitals and international schools is one case for development of international financial centers. If you want to attract top-notch international bankers and professionals in legal, accounting and other services, you have to provide the latest, most modern medical services and facilities for their families and themselves. This also requires modernized schools. The Korean government has been talking for the last ten years about introducing for-profit hospitals. What can a for-profit hospital do? Generate enough revenue to introduce innovative medical services.

In this regard, Korea has failed miserably. Korea is far less advanced than Thailand. The latest data I have is as of 2010. Thailand attracted 1.56 million foreign medical patients. Korea attracted only 80,000. China (a socialist economy) has 8,440 for-profit hospitals accounting for 10% of all the Chinese medical facilities.

Korea has still shown no movement. The Korean government tried very hard to introduce a for-profit hospital in Incheon Song-Do's free economic zone, as well as Je-Ju Island. It hasn't happened yet. Look at our competition, Singapore. They are a successful international financial center, and medical tourism is a major service industry there.

Many rich patients from the Middle East and South Asia go to Singapore. When I visited Jakarta, many people told me that they travel to Singapore's hospitals quite often, even when their child only has a cold. It is very easy to get from Jakarta to Singapore. Having for-profit hospitals not only upgrades your medical services; it generates other businesses. Korea has failed so far.

Therefore, you can see that despite all the government effort to develop Seoul as a major financial center (and it has succeeded in some areas) they have a lot of room for improvement, and I do think improvement is coming. At least 10-20% of the hospitals should be for-profit hospitals so that both foreign and local patients will pay additional monies to get better medical care.

The true development of a successful financial center does not happen naturally. Do you believe that London and New York became financial centers organically? No! It did not happen that way. In 1975, New York took major steps to liberalize financial regulations and deregulate brokerage fees. This was known as the "Mayday" development, because on May 1, 1975, there was a sea change of deregulation on Wall Street. That introduced a host of new services.

In the mid-1980s, London began falling behind in international financial center rankings; so in 1986, the city of London engaged in a major deregulation known as the "Big Bang." The premier global financial centers of New York and London did not emerge naturally. There was a lot of effort by city fathers and government leaders to nurture those centers.

Look at some of the areas with successful regional financial centers. I think the best example is Singapore. Singapore became independent in 1965. At that time, they had a 14% unemployment rate, and 20% of their GDP was derived from British military services. However, in 1968, the British government announced that they were going to shut down their military presence in Singapore. Suddenly, 20% of the GDP was gone. It was a disaster.

The Singapore of 1968 was a poor, backwards developing country, far poorer than the Philippines, for example. However, in 1968, Lee Kuan Yew was able to persuade his colleagues to take the first step to turn Singapore into an international financial center. Why? Because in 1968 (this is from Lee Kuan Yew's own autobiography) he received a memo through his adviser from the manager of the Singapore branch of Bank of America. The Bank of America executive recommended that the Singapore government abolish the withholding tax (I think it was a 25% withholding tax).

Remember in 1968 (the middle of the Vietnam War) many GIs in Vietnam took R&R in Bangkok, Manila and other places, while Asian merchants brought in a lot of revenue. Rather than depositing the dollars in the Singapore branch of Bank of America or Citibank, they sent their money to London. Why? Because non-Singaporean and foreign depositors were subject to a 25% Singapore withholding tax. If you deposited that money in Zurich or London, there was no withholding tax. Therefore, a lot of money was bypassing Singapore and going to London.

As an alternative, Bank of America recommended to the government of Singapore that they remove that tax. That would attract more dollars, and that would help to develop Singapore's economy. Lee Kuan Yew had a hard time persuading his colleagues, but eventually he was successful, and that was the beginning of the development of Singapore as a global financial center. My Korean friends tell me they consider us a backwater country. I disagree. The Korea of 2012 is a million miles ahead of the Singapore of 1968.

Bahrain started to develop their international financial center in 1975. The Bahrain of 1975 was filled with mud villages. There were no modern office buildings. There was no Internet. When the ruler of Bahrain decided to develop Bahrain as an international financial center, many people laughed at him.

Korean leaders have a lot left to do in the promotion and development of Korea as a globally competitive international financial center. I do not believe that Korea should try to become another New York or London (both major global financial centers) but should specialize. Korea should try to become a regional financial center similar to Hong Kong or Singapore. We have already generated a lot of savings. Financial assets in Korea are equivalent to 8% of the Korean GDP. Asset management and project financing would be excellent areas in which Korea could specialize and develop a competitive advantage.

With that, let me stop and answer questions. Thank you very much. [Applause]

NIKITA DESAI: Thank you so much, Dr. Yoon-shik Park. One more time, please, with a round of applause. [Applause]

As the moderator, I would like to ask the first question. You noted earlier that there are four different kinds of international finance centers—one of them being collection centers. I noticed that they were in Qatar and Bahrain. Do Islamic banking rules play a factor in their profile as collection centers? In addition, this year Seoul is ranked No. 9 of all global financial centers. In reference to the Korea-U.S. FTA that passed this year, do you think that ranking will improve in, say, the next three years? If you had to make a prediction, what would that ranking be?

YOON-SHIK PARK:I think both of those are excellent questions. Islamic finance, as you know, does not allow the levying of interest. So, financial practices are centered on profit, loss and the sharing of principal. During the last ten years, or so, Islamic finance has become far more important, particularly the Islamic bond called the sukuk. They are not only popular in the Middle East, but in Malaysia, Indonesia, and elsewhere. Islamic finance is up-and-coming.

Now, Islamic financial services are developing not only in the Middle East, but also in other places like Indonesia. They are experiencing exceptional growth in Malaysia, and these days even the West is embracing Islamic financial institutions. Therefore, it is becoming a global phenomenon. However, in terms of being a sophisticated financial service, they are still relatively small, and therefore, the development of Islamic financial services will not be enough to absorb all the surplus savings and petro dollars generated in the Middle East.

Despite the development of Islamic finance, I think the Middle East still needs professional assistance in globally managing the trillions of petro dollar savings that they have accumulated. Therefore, I think the Middle East financial centers like Dubai, Qatar, and Bahrain will continue to play a dominant role as collection centers, collecting the surplus savings and professionally managing and investing that money abroad. That is the first question.

As to your second question, KORUS or the Korea-U.S. free trade agreement brings up a very relevant point. In Korea, they have the National Economic Advisory Commission, and I am a member of that commission. In the last commission meeting, I complained (because despite all the progress, I am never satisfied. I am always pushing and pushing). Korea's service sector is still far behind, and we have a lot left to do in this area. Moreover, if I were sitting next to President Lee, he would agree.

When he first became president, he pushed for liberalization, deregulation, and the promotion of service sectors; and all the bureaucrats said, "Okay, yes, sir. We will study that." He thought that "we will study" means that the bureaucrats would research the issue and try to find ways to promote it. However, after three years, he found out that when bureaucrats say, "We'll study," that means, "We'll study and then ignore everything we learned." [Laughter] So, even a president learns on the job.

He believed that the two major free trade agreements (the Korea-U.S. FTA and Korea's FTA with the European Union) would be catalysts to promote the Korean service sector. I think it is up to the next president to use the substantial progress made during the Lee Myung-bak administration. Jobs are important, whether you are dealing with a democracy or chaebols. There is a lot of room to improve the practices of chaebols; but for the next president, the most important goal should be the creation of more jobs so that our highly educated young people do not get menial service jobs, but high-class, high value-added professional jobs in the service sectors. Having these FTAs will truly promote that.

GARY MIZEL: My name is Gary Mizel. My company is called 7200 to 30 Securities. It is the ratio of mainstream to minority public companies. In Korea, how many IPOs do you have on an annual basis, and how much money does that comprise?

YOON-SHIK PARK:I do not have that statistic, but you are right. I think your implicit assumption is correct. IPOs and M&As are a much undeveloped area of Korea. Korea's financial sector has a lot of catching up to do.

GARY MIZEL:So do we.

YOON-SHIK PARK: Well, perhaps compared to Hong Kong. Many IPOs seem to be taking place in Hong Kong.

SIGURD ULLAND:What factors do you believe led to the increased ranking of Seoul in the index you showed us?

YOON-SHIK PARK: There are many factors. As I said, the Korean government for the last four years has considered the development of an international financial center as one of their top priorities. I understand I have criticized the Korean government quite a bit; but compared to other countries, the government from the Blue House down has really pushed this idea. So changing the attitude of the Korean government is number one.

Number two, I think there is a growing realization (even among the Korean elite) that we need a new economic development paradigm, and that is the development of the service sector. As I said, the term "medical services" is still very unpopular. The legal sector only recently opened up because of the FTA. The knowledge service industry (including the financial service sector) is on the forefront. I believe there is a developing consensus between the government and the elite of Korea that this is the next new frontier. The Korean economy can truly join the ranks of advanced countries. The government sector alone is not enough. It has to be a combined effort with the private sector.

YEON JEAN YOON:According to your explanation, Shanghai was ranked No. 5 in 2011, but it was ranked No. 8 in 2012. What happened to Shanghai? In addition, you recommended Seoul as a specialized regional financial center like Hong Kong and Singapore. In what sectors or areas do Hong Kong and Singapore's regional financial centers specialize?

YOON-SHIK PARK: I'll answer the second question first. As I said, Hong Kong is lucky in terms of their geographical location. They played the role of gateway for mainland China until China opened up. For many decades, to do any business you normally used Hong Kong. Even Taiwan used Hong Kong to do business with China.

However, in the last two decades, the Chinese government has made a conscious effort (particularly the city fathers of Shanghai) to develop Shanghai as a major international financial center. Yes, it is a friendly competition with Hong Kong. Nevertheless, Shanghai city fathers thought that China is big enough, and we should not rely only on Hong Kong for our Chinese financial service requirements. Therefore, the city fathers of Shanghai put a lot of effort into regulating and developing the infrastructure of Shanghai. If you visit Shanghai now, you will see a very modern, metropolitan city.

When I visited there in the 1980s, it still was a very backward city. Even the hotel services were bad. Earlier this year, there were about twenty-five officials sent by the Shanghai government to the United States. They stayed two months in this country and spent a lot of money in New York and Washington. I spent two days with them discussing Shanghai's strategy for continued growth as a prominent international financial center.

The role of government is critical to developing a country like China into an international financial center. The Chinese government has acted very wisely. They said that manufacturing is not all there is. In order to develop China further, they need a service sector as well, particularly financial services. Shanghai traditionally has been far more developed than Hong Kong (at least they were before the revolution). They will now regain Shanghai's former glory and become an international financial center. The aid is decent, but China has a long way to go, and Seoul has to compete aggressively with Shanghai. Shanghai has many more advantages than Seoul in many areas; but, on the other hand, Seoul has its own advantages, like the free enterprise economy.

As to Shanghai's fall in the ratings, I think that moving between being ranked No. 5 to No. 8 and back again is not that relevant. I believe this is based upon various financial and economic factors. What is clear is that Shanghai is not at the top of the international financial centers, but is definitely an up-and-coming second tier financial center. However, a change from five to eight is not that important.

NIKITA DESAI:If there are no further questions, I would like to thank Dr. Yoon-shik Park again.

YOON-SHIK PARK: Yes. Thank you so much. [Applause]

NIKITA DESAI:Thank you so much for coming. For your train ride up to Washington, D.C., we would like to give you this book, From Pusan to Panmunjom by General Paik.